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Hegemonic Stability Theory - An Examination.
Hegemonic Stability Theory - An Examination.
1989
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Sachse, Victor Edward, "Hegemonic Stability Theory: An Examination." (1989). LSU Historical
Dissertations and Theses. 4740.
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Hegemonic Stability Theory:
An Examination
A Dissertation
in
by
Victor E. Sachse
B.S., Louisiana State University, 1979
M.A., Louisiana State University, 1983
May 1989
Acknowledgments
this dissertation, either directly or indirectly. This includes many people, far too
numerous to name, who have had an impact upon my w ork through their articles
out for special mention. I would like to thank all of the members of my
and Paul Paskoff. I would like to give special thanks to committee member Cecil
V. Crabb Jr., who played an active and extremely helpful role throughout the
writing process.
Lawrence Falkowski. Without his help, intellectual insights, humor, and constant
encouragement, this dissertation would not have been possible. Finally, I express
Abstract ......................................................................................................................... vi
Introduction .................................................................................................................. 1
Military P o w e r .................................................................................................. 17
Chapter 2 23
Regime A n a ly s is .............................................................................................. 23
International ..................................................................................................... 27
Cycle T h e o r y ..................................................................................................... 29
Differences ........................................................................................................ 36
iii
Predictions of Hegemonic Stability Theorists for a Post-Hegemonic
W o r ld ............................................................... 51
Round ................................................................................................. 69
Chapter 4 74
Findings ........................................................................................................... 86
Chapter F i v e .................................................................................................................. 94
Validity of F in d in g s ....................................................................................... 94
iv
Hegemonic War ..................................................................................................112
Conclusions .........................................................................................................113
Appendix T w o ...................................................................................................................124
v
Abstract
"restricted" on the basis of the power relations between the major states in the
world system. Specifically, the theory holds that markets will tend to be most
power, and, conversely, that markets will tend to be restricted when there is no
predominant power.
From the end of World War II until the late 1960s or early 1970s, the
United States was the hegemonic power in the world economy. The U.S. was
particularly predominant in the period from 1945 through roughly 1960. Since
the early 1960s, the U.S. has gradually lost position relative to that of other
major economic powers. If the theory of hegemonic stability is valid, this should
discussion of the internal logic of the theory. Hegemonic stability theory is tested
statistically, utilizing the case of American hegemony in the post World War II
period. Finally, the findings of the statistical test are discussed in terms of their
vi
Introduction
policy. Specifically, this theory is concerned with the relationship between the level
of economic power of the dominant state in the international economy (when one
state clearly is dom inant), and the degree to which international trade increases
or decreases.
presentation of the theory, and a critique of some of the other works related to
the theory. This necessarily includes a discussion of concepts such as "free trade"
and "public goods," as these concepts are central to the theory of hegemonic
stability. I also present a statistical test of the theory, and discuss the implications
of the results thus derived for the international economy of the coming several
decades.
the trading policies of states of all levels of development. The central question
w ith which the theory is concerned is under what conditions the core, or the most
developed states, maintain relatively open trading policies. This in turn has a
significant effect upon the trading policies of peripheral, or less developed states,
stability theory has important general implications for the world political economy.
1
This dissertation will be set forth in five chapters. Chapter One presents
the theory of hegemonic stability with an emphasis upon the central tenants of
the theory. In Chapter Two I consider the major w ork that has been done to
date regarding hegemonic stability theory, and examine some of the commonalities
and differences exhibited by in the perspectives of scholars who have written about
the theory.
Chapter Three discusses U.S. policy in the post World War II period in
hegemonic power.
In Chapter Five, the results of the statistical test is be discussed. Finally, these
results are used to present a brief prognosis as to the possible changes in the
Chapter One
regarding international trade policy that appears to offer fresh insights. This
international trade, and thus of the relative level of international trade, in terms
of the distribution of state power among the core states. In particular, the concern
is with the degree of control one particular state is able to exercise over the
trading policy of the other core states. This perspective has come to be known
a single country will be most stable and will have the most open economic
order.1 It is further held that greater aggregate wealth will be produced under
such a world order. This view is summed up well by Peter Katzenstein, who
of plenty," while 'Periods of hegemonic decline, on the other hand, are marked
only be formed and maintained through the support of the most powerful state
or states in the system (Gilpin 1975:85). By the term "liberal economic order,"
open market and with readily available currency conversion. In Gilpin’s view, the
for "a secure status quo free trade, foreign investment, and a well-functioning
public good is one the consumption of which by one unit does not reduce the
amount available for other units (Kindleberger 1981: 243). Whether or not a
hegemonic state is required in order to provide these "public goods," it is clear that
these factors are positively related to trade among core countries. Kindleberger
is most concerned with the maintenance of "free trade." Indeed, the maintenance
is no single agreed upon definition of the term. One problem is that the term
hegemony has been used in a number of different manners; in some cases these
have little relationship to one another. For example, the term is sometimes used
to describe direct control of one unit over another, with the control being
exercised through political or military means. One such case is the manner in
which Chinese diplomats have referred to "Soviet hegemony." Within the context
establish a precise share of world capabilities as a threshold that a state must reach
1984:32).
This definition is not only of little use operationally, but does not even serve
This definition is more specific and subject to examination than that of Keohane,
although again no specific limits are set as to just what conditions must be met
level of agreement than that regarding economic factors (see section on military
ends, however, is much less clear. For purposes of analysis, it is best to view
and economic size are the major factors upon which this continuum should be
based.
economic term that should not be confused with the many non-specific uses of
the term, based upon a more general concept of power, that are in common use.
Nonetheless, the strong relationship between military and economic power is too
important to be ignored. Military power and economic power certainly are not
synonymous with one another, but each is dependent upon the other. In order
to forge and maintain a hegemonic order, a hegemon must posses certain requisite
military capabilities. For example, it must be able to prevent other states from
using military power to limit access to its key markets. A t the same time, of
course, military power depends, in part, upon economic power. Military power
cannot be maintained without a sound economic basis. While military power will
not be directly included the statistical analysis, it must be recognized that the
economic hegemony that is the focus of the present w ork would not be possible
theory holds that free trade is the m ost efficient basis upon which to allocate
resources. Free trade may be said to exist when three basic conditions are met.
First, there must be no tariff mechanisms, as these may make imported goods
product subsidies, due to the advantages these confer upon the producers of the
subsidized goods. Third, import quotas must also not exist. When these
conditions are met, the market is said to be "unrestricted" or "open". The "ideal
type" of free trade would be a situation in which all of these conditions are met
Other factors that may cause some reductions in trade, such as production and
market, as these are not structural barriers to the importation of other goods.
strict guidelines that are designed to insure that the principle of reciprocity is
order for free trade to be maintained. Reciprocity in this context may be defined
as "actions that are contingent on rewarding reactions from others and that cease
when these expected reactions are not forthcoming" (Blau 1964: 6). If one state
tariff, but does not receive reciprocal treatment, it will tend to change its policy
where exchanges are not based upon full equivalence (Keohane 1986: 6). This
literature, where reciprocity often has meant absolute equivalence. Nonetheless, this
has not been the case in much of the sociological literature, such as in the Blau
definition cited above. In this context, reciprocity means that there is equivalence
of form, but not necessarily of benefits. For example, there may be a reciprocal
trade agreement between a highly developed and a lesser developed state. In such
9
a case the rules regulating exchange may be the same for each party, but benefits
may not be at all equally distributed. This will be discussed more fully below.
maintain such free trade. The provision of free trade is thus seen as being a
all states. Kindleberger states that although both small and large states benefit
from "leadership" (his term for the efforts exerted by a hegemon to maintain a
liberal economic order), the benefits are often even greater for small states than
for large ones. This is due to the fact that smaller states are more often able to
adopt the role of a "free rider." An example of a free rider in this context would
be a small country that is militarily protected by a large one, and as a result does
not need to maintain a defense force of its own. In a similar vein, Kindleberger
argues that where a hegemon exercises leadership, the costs for maintaining the
exchange, etc.) are disproportionately paid by the hegemon, and to a lesser degree
by other relatively large members of the system (Kindleberger 1976:19, 32). This
is in accord with the economic theory of public goods, which hypothesizes that
public goods are under produced due to free riding (Kindleberger 1976: 19).
Kindleberger also assumes that states of all levels of economic development benefit
hegemon performs duties that make it a sort of benevolent benefactor for the
system, whereas he clearly indicates that many other states, particularly smaller
states, benefit from the system without performing sufficient tasks related to the
a larger portion of the aggregate economic activity of these states than is the case
for larger states, due to the smaller internal markets of the smaller states.
Kindleberger’s assumption that free trade will be beneficial even for less
economic theory holds that free trade is essential in order to maintain proper
competition. The law of comparative advantage establishes the basis for this
trade lies in the fact that certain states or individuals can always produce given
goods or services more efficiently than others. This perspective holds that
exchange for states of all levels of development, and thus, that an open trading
contemporary economists in the United States, and there has been remarkably
little scholarly criticism of this position in the U.S. This is even more the case
in U.S. governmental circles. Nonetheless, there are numerous problems with the
above statement. The following two points are particularly important in this
regard. First, more developed states will always have a comparative advantage
v is -a -v is a much wider range of goods and services than is the case for less
developed states. Second, there are always some government interventions in the
market that place restrictions upon trade; at some points in time there simply are
less than others. Less developed states tend to be more greatly disadvantaged
through such interventions than more developed states, since they have less
U.S., that provides considerable evidence to support the contention that the degree
to which a state benefits from the existence of free trade is, in fact, strongly
affected by the level of development of the state (Prebisch 1980). This is dealt
with in great detail especially in dependency theory and world system’s theory
general agreement among both liberal economists and dependency and world
systems theorists that free trade will be maintained only with the existence of a
hegemon, the motives and results assumed by dependency theorists and world
systems theorists are quite different from those assumed by liberal economists.
12
For the former, concern centers upon the problem of unequal exchange (Amin
due to the considerably higher amounts of labor that generally are required to
produced goods sold from less developed to the developed countries, than vice
versa, for goods priced at the same level. This type of trade thus is unequal, and
'w hen operating in direct competition with industries from more developed
disadvantaged unless the costs of the foreign goods are driven up substantially
through the use of tariffs, or domestic goods are subsidized (the latter is generally
a less feasible policy for LDCs, as sufficient capital for such subsidies is generally
not available). This is due to the lower costs of production in the developed
countries made possible through more efficient means of production and greater
economies of scale.
Not surprisingly given its competitive advantages, a state that has a very
strong market advantage is most likely to want to secure free trade. For
example, in the first half of the nineteenth century, Great Britain was able to
produce many goods at a substantially lower cost than other states due to the
labor time required for the manufacture of these goods was much lower than
elsewhere, and British goods could readily be priced at levels far below that of
13
the competition. This gave Great Britain a huge advantage over competitors
penetrated more and m ore markets with its goods, additional advantages were
free trade in the international system was extremely important to British interests.
of heavy tariff barriers in the latter half of the nineteenth century. Without
protection against British industrial goods, this development would have at least
been greatly impeded, and probably made impossible. Indeed, the debate over
free trade was a principal cause of the American Civil War. Southern planter
industrial interests realized that they could develop only with protection against
such goods. The British advantages in terms of both economies of scale and
The example of Britain in the latter half of the nineteenth century provides
From the end of the Napoleonic wars until the period of 1870-1880, Britain was
clearly the preeminent economic power in the world. In 1870, Britain accounted
for 24 percent of world trade (Lake 1983: 525). Also, Britain accounted for
remained even above the U.S. (although by the period of 1881-1885, the U.S.
14
had surpassed Britain in this category; the percentages were 28.6 and 26.6
Germany, accounted for only 13.2% of the w orld’s manufactured goods. The
second major competitor, France, accounted for 10.3% (League of Nations 1945:
13). By 1880 Britain still had the highest per capita income in the world, and
accounted for approximately double the share of world trade and investment of
France, its closest competitor in trade and investment. The only major areas in
which Britain had been surpassed were in aggregate economic size; the U.S.
economy was by this time the largest in the world, and in the level of
manufactures. Nonetheless, the U.S. was not yet a major player in matters of
international economics, and was generally not integrated into the international
political economy. U.S. trade and investment remained extremely low, relative to
that of France and Germany, much less Britain. For this reason, Britain remained
that of other core powers, there is a strong tendency for it to move away from
a free trade posture. Although Britain remained the preeminent economic power
in terms of w orld trade and investment after 1870, it was rapidly loosing ground
to the U.S. and Germany, among others. British colonies began to erect trade
barriers to which only British goods were exempted, particularly in the 1890s.
although this did not occur until 1915. It should be noted in this context that
a hegemon’s retreat from a free trade posture is generally a long, gradual process.
As we may see, although British power was declining relative to that of other
15
major states after 1870, the retreat from a free trade posture w ar certainly not
the 1870s on, Britain no longer worked to maintain an open economic order.
W ith the end of the Second World War, the U.S. quickly became established
as the new hegemon. The major industrial powers of Europe, Great Britain,
France, and Germany, were in a shambles both in terms of their physical plants
and in terms of economic organization in general. The U.S. emerged from the
war far stronger than the other major actors, both economically and militarily.
sought to establish a new economic order based upon a system of free trade
similar to that forged by the U.K. in the nineteenth century. The U.S. was the
to facilitate this economic order, including the Bretton Woods monetary accord,
and the International Monetary Fund and the World Bank. These institutions will
As was the case w ith Britain of the 1870s, however, the U.S. is now no
longer at the apex of its power, and continues to decline in terms of its share
of world trade and investment (for a more complete discussion, see Chapter
F our). It m ust be emphasized that we are referring here to relative, rather than
specific goods have been put in place, and there is a strong movement toward the
erection of further tariff barriers. Whereas in the early decades after World War
16
II the U.S. had sought to convince the nations of the world that free trade was
in everyone’s best interest, the U.S. is now beginning to retreat somewhat from
this stance. Thus it is clear that free trade is an important part of the ideology
of those with the most advantaged position, and that this ideology begins to
relationships. For example, beginning in the 1870s, Great Britain gradually entered
into such trade relationships, particularly with its own colonies. It might seem
that this would serve to increase trade. However, the actual effectis quite the
opposite. Movement from open trade relations to trade relations based upon
level of trade in the system. This is due to the fact that reciprocal trade
agreements confer specific advantages upon the parties to the agreement, thus
is reduced, and the aggregate level of trade tends to decline. Thus, the fact that
declining hegemons enter into such reciprocal relations serves as a support to the
hegemon may, of course, come initially from government circles or may emanate
from various pressure groups or the most basic constituency level. Regardless of
theoiy that this impetus is the result of the hegemonic decline itself. As the
hegemon becomes less able to dominate trade, jobs tend to be lost and wage
sources. The important point for the present analysis is the contention that such
Military Power
military initiatives are best suited for such purposes. Stephen Krasner states that
where there are dramatic asymmetries between the capabilities of the hegemon and
weaker states, the hegemon may use military power to coerce the weaker states
unlikely that force will be utilized to change the policies of m edium -sized states
(Krasner 1976: 322). Robert Keohane also notes that it is difficult in the
contemporaiy world for' a hegemon to use military power directly to attain its
economic policy objectives with its military partners and allies (Keohane 1984:
40).
Instead, Krasner argues that the hegemonic state may best use its economic
resources in order to create an open trading structure. This may take the form
18
of positive incentives, such as offering access to its domestic market and its
or engagement in competition in third country markets that may ruin the second
Robert Keohane notes that a hegemonic state must "be able to protect the
adversaries" (Keohane 1984: 39). Nonetheless, he further notes that a state need
World War II, ever reached such a level. Throughout the nineteenth century Great
Britain was challenged by the continental European powers, and even at the apex
of American power following World War II, the Soviet Union presented a
international political economy through most of the nineteenth century, and the
U.S. was able to do so between late 1945 and the early 1970s.
If these military conditions are not met, hegemony may be ended rather quickly.
Immanuel Wallerstein points out that Dutch economic hegemony in the seventeenth
century was destroyed through the use of military force by Great Britain and
19
Differences in the level of International Trade between Small and Large Industrial
States
activity of small states than of large ones (Krasner 1976: 319). Small states in
this context refers to states with relatively small populations; particularly where
the population is below ten million. Notable among small highly industrialized
states, for example, are Denmark and Finland. The reasons that trade accounts
for a particularly large portion of economic activity of small states are quite clear.
Small states generally have to import more goods per capita than larger states due
to the fact that small states are less able to manufacture all of the specific goods
that are desired. Additionally, exports are particularly important to smaller states
because their internal markets are not sufficiently large to provide favorable
quantities. Therefore, while exports are important for all states in terms of
these factors, at any given time there will be wide variations among states in
terms of their ratios of trade to national income2, even among states of relatively
equal levels of development. Specific trade policies of the different countries do,
■y
National Income is often used by various authors as synonymous
with Gross National Product. Gross National Product is used as the measure
of National Income in this analysis.
20
of course, have some affect here. It is the change in this ratio for each individual
state over time with which we are concerned. If the theory of hegemonic stability
income as the market becomes more restricted due to the failure of the hegemon
Obviously, at any given time certain states will have particular policies
example, a given state may wish to decrease its level of imports in either a
of trade. Certainly the trade policies of smaller states are often based upon
considerations different from those of larger states, given their extreme market
factors constrain the manner in which a state may act to change its balance of
trade. In some cases, the simple fear that the imposition of tariffs may cause
pressures to bear in order to insure that other states maintain a free trade posture.
In some instances, this may even take the form of direct military intervention.
21
chapter that this w ork falls clearly within the realm of international political
context. Even threats of economic sanctions, while certainly within the realm of
viable without other supporting factors. For example, a militarily weak state is
not able to use economic sanctions within the same latitude of circumstances
Finally, it should be noted that the aggregate nature of the world political
economy has major ramifications for international politics. For example, the U.S.
clearly is today less able to dictate the terms under which the international
political economy is regulated than in the period in which the U.S. had greater
the question of military balances and struggles in the Middle East cannot be
vis oil. In Chapter Four, some of the specific ramifications of the changing world
In the next chapter, some of the major w ork that has been done by a
particular, the question of the manner in which different versions of the theory
are similar, and the manner in which they diverge will be examined.
r
Chapter 2
scholars maintain is necessary in order for the theory to work. "Cycle theory" is
also discussed, as the cycle theory literature strongly overlaps with the hegemonic
stability theory literature. Some of the similarities and differences in the work
of various scholars doing w ork regarding hegemonic stability are also examined.
Finally, we will examine an article that attempts to test hegemonic stability theory
by utilizing a group of case studies; perhaps the only major test of this form to
date.
Regime Analysis
the form in which it is generally presented. Robert Keohane argues that in its
crudest form, the theory has little analytical value. He asserts that the theory
23
24
He proposes that the primary problems of the theory can be greatly mitigated
Keohane advocates the use of "a structural approach to international regime change,
differentiated by issue area" (Keohane 1980: 154). Three such issue areas cited
regime, and the international trade regime.2 It is his contention that eroding
regime, less so for the international monetary regime, and even less to the
international trade regimes (it should be noted that he provides little empirical
trade; thus the primary concern is with issues that Keohane would include as
and most other theorists. Nonetheless, it is m y contention that issue areas should
While differentiation by issue areas certainly has face validity and may be
of some analytical utility, whether the issue areas may be separated as clearly as
international trade regime has strong structural links with the international
in international monetary policy. Thus, these issue areas do not form mutually
exclusive categories.
Second, some of the explanations Keohane offers for changes in the different
153).
26
While this argument is undoubtedly largely correct, it misses the key point. The
seriousness of the recession itself, although a part of the general boom and bust
cycle, was more than likely deepened by the lack of monetary control due to the
Keohane himself discusses at length, but does not relate to the seriousness of
recession. Perhaps even more importantly, the rise of manufactured exports from
less developed countries relative to those from the hegemonic (or previously
theory in the manner suggested by Keohane. Again, the structural links between
the regimes analyzed by Keohane are much more important than he suggests.
Despite some of the problems suggested above, regime analysis has become
Although the acceptance of regime analysis has not been unequivocal, criticism has
been relatively limited. Nonetheless, a few scholars have suggested that the utility
of this form of analysis may be less than is generally accepted. Indeed, Susan
Strange argues that not only is this the case, but further asks
1982: 479).
primary bias lies in the fact that there is a general assumption that everyone
wants more and better regimes (Strange 1982: 478). It is interesting to note
Strange’s article here cited appeared (an issue focusing on regime analysis), one
of the articles is even titled "The Demand for International Regimes" (by Robert
Keohane). The assumption that regimes are desired by all (or, at least most)
is quite common. Strange further points out this bias by quoting from the earliest
draft of editor Stephen Krasner’s introductory article to the above cited volume
primary concerns of social theory here are questions such as those relating to
justice or other normative considerations. Although Strange does not delve more
fully into the factors influencing the direction of social theory, it is clear how
international regimes, but this certainly does not mean that most desire the types
of regimes that have been established since the end of World War II (an
that are in place have been highly detrimental to many less-developed countries.
That many do not desire the same types of regimes as those favored by the U.S.
and to some extent other Western powers is clear (a simple examination of U.N.
Further, a number of states have gone beyond the point of simply rejecting
the extant regimes, and have proposed the formation of new regimes, or, at least
28
creation and alteration is the proposal by a large portion of the w orld’s developing
This includes, for example, a call for a major redistribution of international credit
(the formation of a new credit regime). It also includes a call for the developing
states to have a much larger voice in structures existing under present regimes,
organizations is often not congruent with the distribution of state power (Krasner
instability" (Krasner 1985: 75). As he points out, one of the ironies is that
organizations that initially serve their interests, but that later may be restructured
by other actors for other purposes. A good example of this is the International
Court of Justice. Thus far, this type of restructuring has not taken place with
any of the major international monetary institutions,such as the Word Bank or the
of the United States (and, to a lesser degree, of other major economic powers
suggested by Keohane is not tenable does not mean that we should not discuss
specific regimes. Indeed, one can certainly refer to specific regimes, such as the
regime in this manner does not imply that regimes may be studied separately in
the manner of Keohane’s work. In this dissertation, when the term regime is
used, it refers to a particular set of implicitly understood rules for a given issue
area (in the manner of Keohane’s own initial definition), but does not imply the
type of relative issue autonomy of the type that is inherent in Keohane’s work.3
Cycle Theory
others, maintain that the system alternates between periods of hegemony and
periods of core competition on a more or less regular basis (Chase-D unn and
Rubinson 1977: 463). It is their contention that this alternation has taken place
since the sixteenth century, the beginning of what Wallerstein terms the modem
world system.
into two primary phases. The A -phase is the period in which one particular state
is greatly increasing its economic power relative to that of other core states. The
A -phase lasts until the time when the hegemon has reached the pinnacle of its
power. After this time follows a period in which the economic power of the
hegemon declines relative to that of other core states. The hegemon may, in fact,
in relative terms due to more rapid growth of other core states. The period of
decline is termed the B-phase. Taken together, the A -phase and B-phase
constitute a systemic cycle which begins with a period of core competition, enters
time frame. For example, this may take the form of long waves of roughly
there is substantial evidence to support the existence of general cycles (at least
over the past several hundred years), the evidence indicates that the periods of
time required for the cycle to run its course varies from case to case (Bergesen
1981: 1 8 7 -1 8 8 ).
George Modelski, like Wallerstein, places the beginning of the modem world
system around 1500 (Modelski 1978: 214). He asserts that since this time, the
world system may be seen as having gone through a series of cycles with an
average period of just over one hundred years (Modelski 1978: 217). Modelski
states that each cycle begins with a period of weak system organization that
ultimately dissolves into a global war. The result of such a global war is the
31
emergence of one world power that is preponderant and thus able to dominate
the system, and maintain systemic order. Ultimately, the dominant power looses
Modelski states that there have been five such cycles since the beginning
of the modem world system: the period of domination by Portugal from 1494
1609 through 1672-1678; a first period of British domination from 1713 through
the late 1700s; a second period of British domination from 1815 through 1939;
and a period of U.S. domination beginning in 1945 that has not yet ended. It
must be noted that there is rather general, although not complete agreement among
British period, or the U.S.period. However, Modelski himself notes that some
scholars hold that the major power of the sixteenth century was Spain rather than
Portugal (Modelski 1978: 219). Secondly, not all major scholars concerned with
cycles and hegemonic stability identify the period that Modelski refers to as the
first British period. Finally,as we have already seen, most scholars place the end
of what Modelski refers to as the second British period much earlier than 1939.
For Modelski, 1939 has to be considered as the end of the period due to the fact
that,in his theoretical perspective, each period of domination must end with global
war. In this context, Modelski holds that World Wars I and II were both part
of the same basic global conflict that ended one world order, and began anew one
in 1945.
32
whereas "the long cycle perspective proposes that minimum threshold levels of
1987: 193). While it is certainly true that hegemonic stability theory is basically
economic in nature, it is definitely not the case that hegemonic stability theory
does not hold that minimum militaiy thresholds are required. While it is true that
some "cycle theorists," including Modelski, may deal somewhat more with military
there are also significant differences. For example, he notes that while hegemonic
stability theory posits a direct relationship between hegemony and the existence
of free trade policies, this is not completely the case for the long-cycle
trade is posited, but the relationship is held to be more variable, depending upon
specific conditions. This is, in fact, probably the largest difference between the
did Frederick, that the long-cycle perspective is more concerned with strategic
concerned
1 2 -1 3 ).
Hegemonic stability theory is, in fact, directly concerned with the challenge to
leadership and the tension thus arising. Indeed, this challenge is one of the major
concentrate upon military and strategic matter somewhat more than does hegemonic
stability theory. 2. The relationship between hegemony and free trade is less
clear-cut in long-cycle theory than in hegemonic stability theory. The latter point
relationship between hegemony and free trade appears in Chapter Three. Therefore,
hegemonic stability theoiy, but not of long-cycle theory. Nonetheless, the results
34
certainly will pertain to long-cycle theory, as the degree to which the relationship
commonalities are also strong. Both are directly concerned with the rise and fall
of hegemonic orders. Both identify, at the very least, specific periods of British
and American hegemony, and both see many common conditions involved in the
Perhaps most important of all, both maintain that the system will only be
between the perspectives that simply do not exist, as Modelski and Frederick
has coincided with the expansion and contraction of colonialism (Bergesen and
Schoenberg 1980: 238). Colonialism has expanded when economic power has
been held by a number of core states,without any one state being clearly
predominant. Colonialism has contracted when one state has become predominant
in the system; i.e. the hegemon. The British case of the nineteenth century serves
as an excellent illustration of this point. Until the latter portion of the nineteenth
century, Britain dominated the system, and established a free trade regime.
Although some colonization did, in fact, take place during this period,the rate was
rather gradual. As Britain’s power and the British-established free trade regime
eroded, particularly after 1870, a scramble began among the core powers to carve
up the remaining un colonized parts of the world. Thus, colonial empires were
35
expanded rapidly during this period. Britain itself was a major player in this
expansion, even adding an area as vast as India to its empire. By the end of the
century, much of Africa and a substantial portion of Asia had been colonized.
With the ascendance of the U.S. as a hegemon in the post-W orld War II
period, and with the advent of a new free trade regime, the gradual process of
their economic relations. For example, core states trading with their own colonies
are not subject to the uncertainties and differential treatment of changing tariff
trade regime is in place, conflict is minimized and economic transactions take place
peripheral states are primarily economic, rather than explicitly political, as in the
case of colonialism.
the suggestion that this is the case is sometimes made, it seems rather unlikely
given the present world order. In particular, the present balance between the
Western Powers and the Eastern Bloc would seem to greatly mitigate the
Five). A much more likely scenario is that as hegemony continues to erode, the
world economy will come to be based more and more upon various particularistic
trade agreements, with free trade thus becoming much less common. This has
36
been the pattern the last several hundred years, although until the present it has
is correct, this will also mean that international trade will gradually decrease for
In short, while for the last several hundred years movement from
the case in the future. Instead, as we have discussed above, the changes may
movement toward and away from colonialism is not generally viewed analytically
as a cycle resulting from the latter movement. Again, it m ust be emphasized that
the argument regarding colonialism is advanced by the w orld systems theorists, not
by such liberal theorists as Kindleberger and Keohane. For the latter, the focus is
Differences
As is usually the case with regard to general theories, there are some
theory’s specifics. There is, of course, general agreement that a hegemon is needed
departing from the general theory, maintains that once the regimes to support an
37
particularly with regard to the question as to the specific character of the role
the hegemon performs a role that is beneficial to the world order in general.
Kindleberger’s choice of the term "leadership" to describe the role taken by the
himself notes that it is not always easy to distinguish leadership from exploitation
(Kindleberger 1981: 248). Despite this, he maintains that the U.S. has generally
assumed a leadership role rather than one of exploitation. He does suggest that
from the end of World War II until 1960, "domination was inadvertently involved"
although he does not spell out the specific forms of domination and does not
substitutes the term "domination" for "exploitation." Although he does not discuss
Kindleberger believes that by 1960, domination was not present in the U.S. role
Kindleberger does note that public goods are sometimes competitive with
248).
Kindleberger argues that whatever surplus is gained by the hegemon in this manner
may be seen as being a benefit gained in return for the disproportionate system
maintenance costs bome by the hegemon (Kindleberger 1981: 248). His primary
concern lies w ith the instances where the public good is underproduced due to the
due to the inability or unwillingness of the hegemon to pay the costs of system
1981: 251).
more from the investments than merely than the value of the investments
argues that a government, in effect acting as an entrepreneur, will have the same
itself from the regime than it invests in organizing the activity" (Keohane 1982:
339). Therefore, a hegemon is unlikely to carry out the stabilizing role for the
system if the maintenance costs are greater than the perceived value of received
benefits.
Despite the fact that Keohane is more explicit than Kindleberger in his
discussion regarding benefits for the hegemon, his major concern for the system
is virtually identical to that of Kindleberger. Keohane states that the big problem
339).
This is the same as Kindleberger’s concern about the tendency of public goods
He further states that the hegemonic power supplies public goods, particularly
for Gilpin the primary motivation for the hegemon to stabilize the political
economy is that this enhances its own economic and security positions. In this
than by the specific needs of the recipient countries (Gilpin 1981: 143).
Nonetheless, Gilpin does not see the structural relationship between the hegemon
and under developed societies as being detrimental to the latter to the same degree
Stephen Krasner, like Kindleberger and Keohane, states that at the height
of its power, the hegemonic state will disproportionately supply collective goods
for the system. This supply will decline as the hegemon declines in power, relative
to that of other states. Krasner notes that a declining power is less willing to
(Krasner 1985: 78). Nonetheless, this does not mean that Krasner sees the role
of the hegemon as a benevolent one. For example, after stating that the U.S. was
the primary force in creating the international organizations after World War II,
legitimate its preferences and values" (Krasner 1985: 10). Of course, such
41
preferences and values need not, in all cases, run counter to the needs and
preferences of other states. It is clear that most preferences and values will run
Krasner makes it completely clear that the international regimes that have
been fostered by the U.S., in their present form, largely run counter to the
may cases, the form of these regimes has been supported by most other
the interests and preferences of the U.S. were generally in accord with those of
1985: 3).
We have already seen that world systems theorists describe a variance in the
world system between periods when the distribution of power among core states
is unicentric, with one hegemonic state, and periods when the distribution is
multicentric. Chase-D unn and Richard Rubinson, and Albert Szymanski, state that
when the system is unicentric, the role played by the hegemon allows other core
Chase-D unn and Rubinson summarize the world systems theory position
1977: 464).
This is virtually identical to the role description of the hegemon, and the concept
Krasner. In fact, on a basic level, the general description of hegemony varies little
between any of the aforementioned scholars, or between these scholars and world
identical. This includes their w ork on the movement of the world system
between unicentric and multicentric periods, the basic factors which cause this
movement to take place, and the way in which the hegemon operates to stabilize
the system. It is quite striking that this should be so, given the differences in
perspective between these scholars, and particularly between these scholars and
world systems theorists. The differences of perspective lie not in the descriptions
I will here summarize the basic perspectives of the scholars discussed above
that more benefits accrue to a system with a hegemon than to a system without
one. The general position is that all states will tend to benefit from this form
43
imply that all are affected in the same manner. For example, developed states
are purported to pay more maintenance costs than others. Also, Keohane states
that the hegemon does derive some benefits as a result of its particular role in
the system. Nonetheless, benefits are said to accrue to all members of the system.
For Krasner, the benefits are instead asymmetrical. Developed states tend to benefit
structured in a manner that benefits the core states to the detriment of the
and back again. Under both unicentric and multicentric orders, the core states
gain at the expense of the peripheral, and often the semi-peripheral, states. The
unicentricity, the system is held to be more stable. There are fewer conflicts
describe the operation of hegemony itself under the same basic terms. This is
quite astounding, given the radically different perspectives the theorists represent.
The basic conditions under which a hegemon will rise or fall are similar for all
of these theorists. All maintain that the system will be most stable when there
there are indeed deep divergences. This matter will be discussed in greater detail
in Chapter Five.
44
which they are open or closed (this problem will be discussed more fully in
analysis of the trade policies of specific states or ports over time. The trade
policies may then be viewed in terms of the extent to which the world system
commercial policies of the states or ports should be relatively open when the
when it is not.
A n obvious problem with the method outlined above is that the results of
such an analysis may not be generalized for the system as a whole, unless a
rather large group of states or ports are included in the analysis. Unfortunately,
this would indeed be quite a major task. Nonetheless, such a study, even of a
small group of states or ports, could provide a useful beginning, which could then
be followed with the application of the same method to the commercial policy of
set out to test the theory of hegemonic stability by examining the nineteenth
45
century trade policies of three Arabian port-cities: Muscat, Aden, and Mocha.
Although he does not make it completely clear why he chose these three particular
ports as the focus of his study, he does point out that all three were important
trading centers between 1800 and 1905, with "extensive relations with European
that the relationship between hegemony and free trade in the commercial affairs
of these states was not what the theory of hegemonic stability (or the mercantilist
I will examine Lawson’s findings and conclusions for each of the three
ports, beginning with the Omani port of Muscat. Lawson states that the years
in which "an open international trading order operated around Muscat do not
coincide with either period (see below) of British predominance in the area"
I will not question Lawson’s summary that is presented above, but rather
his conclusions. His statement regarding British predominance in the area misses
the point. By his own definition, hegemonic stability theory, or the mercantilist
in the world. Yet, as w e have seen, his analysis of the commercial policy of
Muscat, as well as that of Aden and Mocha, is based upon changes in the periods
of "British predominance in the area," not upon Britain’s position in the world
perspective is not based upon "predominance in the area," but rather upon
predominance in the world. He does indeed provide substantial evidence that trade
opennessdecreased as British predominance in the area increased, but this does not
I will briefly reexamine the trade policy of Muscat, utilizing the historical
the mercantilist perspective, rather than his later used concept of predominance
in the area: 1800-1825. British power was increasing rapidly, but had not
reached the levels it would later in the century. Substantial controls remained on
trade in the Omani territories. 1825-1845. British power was increasing relative
Omani territories took place. 1860-1885. British power reached its height in
this period (the period around 1870 is generally considered to have been the time
at which British power reached its apex). An open trading structure was in place
powers after the early 1870s, and by the early 1890s had lost substantial ground
to other states, particularly the U.S., and France. A gradual constriction of foreign
it. A t the height of British world power, an open trading structure was in place
at Muscat. As British power in the world waned, Britain began restricting trade
at the port, as it set up trade agreements that better served British interests, with
Lawson’s analysis of the ports of Aden and Mocha produced results very
similar to those for Muscat. He notes that from 1839 to 1850, there was
relaxed when British power was highest, at least in the period from 1850 to
1870. In the case of Mocha, Lawson states that from 1820 to 1830, Britain
dominated the port’s commercial affairs; sometimes restricting trade and sometimes
opening it up. However, he states that from 1845 through 1880, years of
Lawson concludes that for both Aden and Mocha, as for Muscat, no
relationship could be "found between the presence of a hegemonic power and the
existence of an open trading structure..." (Lawson 1983: 328). It is true that for
Aden, as well as for Muscat, the trading structure was indeed not open when the
British presence in the area was strongest, but was generally open when British
power in the world was greatest. Therefore, as was the case with Muscat, the
trading policies of Aden seem to give support to the theory of hegemonic stability,
rather than the contrary as Lawson suggests. By contrast, Lawson’s findings for
Mocha do indeed seem not to be in accord with the theory. The trading structure
was closed at the time when British power in the world was greatest.
330).
three Arabian ports, Lawson’s assertion that open trading structures seem more
likely to be in place where there is not hegemony is not wholly tenable on the
basis of these cases. Indeed, the preponderance of evidence seems to run in the
other direction; free trading structures were most often in place for the ports when
Lawson’s study does not provide sufficient evidence to conclude that hegemonic
stability theory is, in fact, correct in its most basic tenant; that free trade
structures are most likely (o r perhaps only possible) under hegemony. It does,
however, provide sufficient evidence to conclude that Lawson’s findings are not
theory is invalid. The data may be interpreted quite differently from Lawson’s
the difficulties involved in determining through systematic means exactly what the
In Chapter Three I will discuss some of the basic predictions derived from
Also, some of the central aspects of the international trade regime in the post
I
Chapter Three
stability theory with regard to the structure of the world economic order after
the fall of a hegemon. As I have noted above, there are some noteworthy
by various theorists. As would be expected given this fact, predictions for the
economic policy in the post World War II period, particularly with regard to the
basic direction of U.S. international economic policy during this period is essential,
not only in understanding the nature of American hegemony, but also to making
Robert Keohane (Keohane 1984: 9) and Robert Gilpin both point out that
hegemonic powers have in each case been the result of a world war.1 For
51
52
example, Great Britain became a hegemon only with the end of the Napoleonic
wars. The U.S. became a hegemon after, and partly as a result of, World War
II. Whether or not the U.S. could have, or would have, become a hegemon had
doubtless the case that the U.S. would not have dominated the w orld political
economy nearly so thoroughly as it did had the war not taken place. Certainly,
the European powers would have remained as much larger and potent powers,
particularly economic powers, during the period running roughly from the end of
the war until the early 1970s, when the U.S. was predominant by a large margin.
This, in turn, would have resulted in the U.S. not having been as readily able to
A hegemonic war is one which drastically alters the relative standings of the
that it is not inevitable that the present world order will eventually disintegrate
While he does suggest that there are various factors that may serve to stabilize
the system over the coming decades, he does not directly address the question of
After making a strong structural argument to demonstrate that hegemonic war has
always been the major means of system adjustment, he suggests that this may be
avoided, but does not make it at all clear how this might be accomplished.
Keohane argues that while there is some validity to the proposition that
hegemony
regimes have been established" is key in this context. Keohane is here asserting
that cooperation can take place without the presence of a hegemon, but nonetheless
54
maintains that this is the case only if international regimes have already been
established. The clear implication is that such regimes may be established only
theory, a hegemon is necessary for the establishment, but not the maintenance, of
cooperation.
in the world today. Despite the fact that the U.S. no longer serves as a
hegemon, and despite his realization that no other nation is in a position to fill
this role, he believes that the extent regimes may be a sufficient basis upon which
hindsight, given that regimes, such as the extent international trade regime, may
as I noted in Chapter Two, different regimes certainly may have an affect upon
one another; thus, it may well take the maintenance of a number of regimes in
order for stability to be maintained in any given issue area, such as the area of
international trade.
regimes may be captured by various parties in order to serve aims that are quite
different from those that were originally intended. Whether this is good or bad
varies, of course, from case to case; generally the question of "good for whom?"
must also be asked. For example, the United Nations Educational, Scientific,
and Cultural Organization (UNESCO) initially was strongly supported by the U.S.
The major powers, particularly the U.S., exercised a considerable degree of control
over the policies of this organization. However, in recent years, the large group
of non-aligned, less developed states in the United Nations have come to wield
substantial influence over the direction of UNESCO policy. This change is viewed
very positively by most of the less developed states, but very negatively by most
of the more developed states. The Reagan Administration even went so far as
to discontinue U.S. support for UNESCO due to its dissatisfaction with UNESCO
Second, while there may be regime lag due to inertia, such that regimes
may outlast the structural conditions of the world political economy under which
they were established, regime lag and regime perpetuation are two entirely different
linger for some time after the fall of a hegemon, but it is not clear how long
they may last. Whether or not regimes may last in the long term without the
sees little possibility in there being a stable world political economy without one
56
nation, the hegemon, acting as the stabilizer through the exercise of a "leadership"
but ultimately concludes that none of these forms are likely to w ork properly.
stabilized through altruism on the part of the states. This, he concludes, is not
managed readily, due, in large part, to the extreme volatility of the international
currency markets. Kindleberger argues that m ost countries are not willing to
bear any of the costs of changing this situation. He thus concludes that the
being organized on the basis of "enlightened self-interest," but concludes that this
also cannot work, primarily due to states seeking short-term advantage. Again,
Kindleberger makes an implicit assumption that all states, including what he calls
the poor states, should favor various principles of liberal economics, particularly
free trade. Although he does not make the point directly, it is clear that in his
managed by rules," but concludes that this form of organization will not work,
explicit rules or the content of the implicit rules, and second in their application
possibility of organization through regional blocs, citing, for example, the European
Economic Community, but determines that this cannot work, primarily due to the
fact that "the regional-bloc notion fails to take account of the world scale of
assertion.
which the international political economy may be stabilized. He does suggest that
leadership in the coming decades consisting of the U.S., West Germany, and Japan.
In such an event, these countries would stabilize the system by "uniting their
work, for two reasons. First, the leader countries may have too much trouble
that may well prove difficult in terms of policy co-ordination. In all fairness,
Second, the different members of the tripartite group would be too likely
(such as the system of American hegemony after World War II), is probably
is not at all clear to Kindleberger at what time another state will be both able
Stephen Krasner argues that the conditions that kept the system relatively
stable in the 1960s cannot be recreated in the 1980s, due to the decline in
American power relative to that of other states. He states that the decline of
American power has tw o implications for the world economy. "First, the
and rules no longer serve as the basis for many decisions. Instead, behavior is
fragile; it is less able to absorb unexpected shocks. For example, no state now
functions as a lender of last resort (Krasner 1982: 30). This function was
exercised by the U.S. until the early 1970s. Krasner further notes that even if
maintain an open regime, they may still not be willing to pay the costs of
maintenance. Particularly when a shock occurs in the system, such as the shock
59
resulting from the 1973 OPEC oil boycott, states are too likely to w ork to secure
maintains that the system is not necessarily doomed to collapse (Krasner 1982:
31).
The U.S. set about putting in place the institutions it believed could serve to
makers was such that they maintained that the American world vision was in the
best interest not only of the U.S., but in the world at large. The institutions
Reconstruction and Development (the World Bank), and the International Monetary
Fund. The IMF was originally designed to help countries overcome short term
60
Ultimately both of these institutions came to serve purposes rather different from
their initial missions. The IMF is heavily involved to loans to less developed
countries that have financial problems that cannot by any stretch of the
World Bank never was provided with sufficient funds to provide for the
industrialized countries were major clients of the bank until the mid 1960s
(Krasner 1985: 142), but the major clients since that time have been less
developed countries. It is clear that even from the first the international economic
institutions pushed by the U.S. after the end of the second world war did not
w ork in accord with their designs. Nonetheless, the U.S. had such an
overwhelming economic advantage over the w a r-to m European states that it was
still in a position to determine the basic t°rms under which the international
The inability of the World Bank to foster the reconstruction of Europe eventually
William Avery and David Rapkin note that the creation and maintenance
and capital, itself served to greatly increase interdependence. They conclude that
"...the effects of interdependence on the United States have been inversely related
to the extent of its dominance of the international economic system (Avery and
61
been noted that an order, once established, takes on its own dynamics, many of
which may not be in accord with the intentions of the hegemon. Other states,
of course, are even less in a position to have the order be even close to a direct
relationship between the states and the order that they form. The collective
actions of the states, and particularly those of the hegemon, form and maintain
the order. However the order, due to its great complexity, may not be completely
controlled, and thus it, in turn, acts back upon the individual states, constraining
and partially shaping their behaviors. Additionally, it has already been noted that
international regimes may be purposively co-opted for particular purposes that are
different from those for which they were initially designed. Certainly, for
example, the U.N. General Assembly serves a far different purpose than that which
the U.S. and other major powers initially intended, particularly due to the
After World War II, the United States sometimes undertook policies that sacrificed
short term gains in the name of long term stability. It was believed that such
a policy would be most advantageous in the long term interests of the U.S., in
security and economic terms. The Marshall plan is perhaps the m ost important
American acceptance of the protectionist stance of Japan, at a time when the U.S.
was the w orld’s major advocate of free trade. It was understood that Japan
w ould be unable to develop without its domestic market being protected against
the importation of more efficiently produced goods from the U.S. and Europe.
Therefore, the short term profit interests were subordinated to long term factors.
short term interests. U.S. economic policy is now oriented much more strongly
toward matters related to short term, primarily domestic interests, than was the
case in the 1950s and 1960s. For example, almost all major decisions regarding
American fiscal policy are now made on the basis of domestic considerations; this
is quite different from the situation when the U.S. was serving as a lender of last
As the U.S. has lost economic ground relative to other core states,
particularly in terms of the balance of trade and aggregate size of the economy,
the U.S. has gradually moved to a stance where it often violates its previously
held principles of a liberal economic order, particularly with regard to trade policy.
goods that threaten domestic firms. Additionally, the use of import quotas is
It is important to realize that the systemic factors that lead to the decline
of hegemonic states are largely resultant from the policies of the hegemonic states
its production technologies throughout the system. This in turn serves to erode
the dominant economic position of the hegemon. Ironically, in this manner the
demise. Further, for both Great Britain in the nineteenth century, and the United
States in the twentieth century, the failure to invest sufficiently in physical plant
of the United States since World War II. The U.S. has increasingly relied upon
foreign exchange, and solving domestic economic problems (Gilpin 1975: 8). The
use of direct foreign investment has major implications, both for the maintenance
64
of hegemony, and for the degree to which international trade is likely to increase
or decrease.
whether the U.S. is repeating a major error made by other, once great economic
powers, such as The Netherlands in the seventeenth century and Great Britain in
the nineteenth, "...of overinvesting abroad to the detriment of the home economy?"
(Gilpin 1975: 8). As I will discuss below, the large-scale use of direct foreign
difference from the British investment pattern during the period of British
economy of the late nineteenth and early twentieth centuries, the last period before
the present witnessing the fall of a hegemon, and the present international political
order.
take two major forms: portfolio investments and direct foreign investment.
Portfolio investments are investments in which the investing firm makes equity
investments in other firms, where the amount of the investment is not sufficient
to give the investing firm a controlling interest, or makes various types of loans
to foreign firms. In each case, control over the firms receiving the investment
or loan remains with those firms. In the case of direct foreign investment, the
investing firm either begins a new subsidiary in a foreign market, with the parent
65
direct foreign investment, control is held by the parent company. Therefore, the
ability of the governments of the host countries to regulate those firms is much
more limited than would be the case if controlling interest were held within the
host country. For example, it is quite difficult for the government of a host
difficult due to the fact that there is often an implicit (and sometimes explicit)
threat that the company will relocate if it does not get its way. This threat may
carry substantial weight in countries that are actively engaged in seeking foreign
investment. Obviously, there are specific types of cases where this threat is not
particularly strong; situations where there are certain national endowments that
Although Great Britain did make some direct investments in the nineteenth
century, the majority of its investments were in the form of portfolio investments
and loans. The large international banks based in London were at the center of
was much less common in the nineteenth century than has been the case in this
century, particularly since the end of World War II. The growth of direct foreign
foreign investment became practical for many concerns only with the advent of
Gilpin notes that by the early 1970s, direct foreign investment accounted
for more international economic exchange for the U.S. than did exports (Gilpin
entire production of goods of any other country except the U.S. and the Soviet
common form of investment for core countries in general, until quite recently it
outside of the U.S, than is the case for U.S. based corporations. Nonetheless, this
probably will not be the case in the near future, as many foreign concerns are
and France, and Japanese firms, are now regularly making large-scale direct
foreign investments in the United States. The increasing use direct foreign
investment by corporations based outside the U.S. is certainly one of the most
significant global economic trends of the past decade. Perhaps most importantly,
the global increase in the use of direct foreign investment has acted as a major
undertaken for different reasons than is the case for core investment in peripheral
countries. Labor costs in all core countries are high, so investment will generally
not be for this purpose. Japan, for example, now receives little investment due
to labor advantages, with it now being a full core member, whereas such
investment was common there twenty years ago. Instead, the major purpose is
considered as being domestic enterprises in the countries in which they are located.
Therefore, goods produced by those subsidiaries are not subject to tariffs in the
area may be particularly strong where there are tariff exemptions that extend
beyond one given country. For example, there is a major advantage in many
produced within the European Economic Community nations may be moved from
member to member without being subject to the higher tariffs to which they
would be subjected were they coming from outside. The result of this is that the
location of a plant in any member nation provides access to a huge market with
reduced barriers. This is one of the chief benefits to core countries of the
economic activity for peripheral countries than is the case for core countries.
68
Also, we have already noted that it is generally particularly difficult for the
greater annual revenue than the entire gross national product of the country in
may often wield substantially more control over peripheral countries than is the
case w ith regard to less developed countries. This is a major point of contention
Industrial Decline
many of the advantages that are central to hegemonic ascendance. I have already
noted that some decline of the U.S. economic position relative to that of other
powers was virtually inevitable in the past few years, given the result of the
European economies gradually recovering after World War II. Nonetheless, both
Great Britain in the nineteenth century, and the United States in the twentieth
century, made decisions (o r did not act at all) that had extremely negative
ramifications for their economies, and that served to hasten their relative decline.
advantages. However, in time, other core states are able to develop more
advanced physical plants and infrastructures. In many cases they are able to do
so utilizing technology diffused from the hegemon as the base. The steel industry
provides one of many excellent examples. After World War II, the U.S. steel
69
industry, with its more efficient production, rapidly outstripped the performance
of the British steel industry. The British plants were considerably older and less
advanced than their American counterparts. Therefore, it was easy for U.S. firms
to sell steel below the cost of British firms. It has often been remarked that
Britain was extremely unfortunate not to have had more steel plants destroyed
during World War II; this would have necessitated the building of new plants,
contrast, The Japanese steel capacity was largely destroyed in the war. As a
is a clear case where the diffusion of technology from the hegemon ultimately led
problem for the m ost highly developed states is that the amount of fixed capital
interests, particularly in the U.S., have a strong tendency to base decisions upon
a short, rather than a long, term calculus. Under such a calculus, diversification
tends to be favored over plant modernization. This has been one of the major
causes of the U.S. losing ground to other countries in the exportation of goods.
merely has been more sever in some countries than in others. This factor
probably has not served to reduce the overall level of international trade, since
The General Agreement on Tariffs and Trade and the Tokyo Round
70
what is the likely result of recent international trade policy in terms of market
The General Agreement on Tariffs and Trade was one of the cornerstones
upon which the post World War II international economic order was built.
This was a response to the high tariffs that were enacted in the 1930s (de C.
GATT provisions. Nevertheless, GATT has not worked completely in the manner
originally intended. The drafters of GATT apparently did not recognize the extent
competition from foreign goods. The increasing emphasis of the U.S. upon "fair
trade," beginning especially in the early 1970s, was aimed at such limitations. The
anti-dum ping provisions of the Trade Act of 1974 provides a direct example of
the implementation of policy on the basis of a "fair trade" doctrine (de C. Grey
1982: 7 ).
nearly one hundred nations participating, had an important impact upon policies
declaration asserted that the participating nations would w ork to secure "the
71
accomplished through tariff reductions and through weakening other policies that
1982: XV).
protection. For example, under the Tokyo Round Code on Subsidies and
to deal with subsidies of other governments. The first states that a country may
offset subsidies on foreign goods through the use of countervailing duties. The
Signatories in order either to have the subsidy changed, or to give a right to take
retaliatory measures against its negative effects (Barcelo III: 121). The fact that
necessary is in itself a tacit admission that there have been major breaks the free
trade regime.
agricultural goods are either not covered, or at least are not covered fully. This
has been and remains a major point of contention between the wealthy countries
of the North and the poor Southern countries (Rangarajan 1984: 137, 138). The
trade preferences of poor countries often run exactly opposite to those of the
wealthy countries in this regard; they wish to have there be more protections
against manufactured goods, but less against primary commodities, as their exports
are usually zero for unprocessed material, but increase sharply in accordance with
The principles of GATT continue are being undermined more and more
may be defined as
1970: 5).
of cars to the U.S.; a result of strong American pressure. This runs directly
counter to GATT provisions which disallow any quotas on imports from specific
countries. It would appear that, taken together, the increased use of n o n -tariff
1983, the U.S. steel concerns persuaded the Reagan administration to impose an
import ceiling of 20 percent of the 100 million ton market for approximately
twenty varieties of steel. A t that time, imported steel accounted for roughly
tw enty-seven percent of the metal sold in the U.S. The U.S. then proceeded to
share of total U.S. sales, by threatening to file various anti-dum ping and anti
stability theory, this is the direct consequence of the decline of the hegemon, in
the present case, the U.S. Taken together, VRAs and other n o n -tariff mechanisms
should serve to depress the level of international trade, or, at the very least,
mechanisms that have been put in place are, in fact, sufficient to cause trade levels
In the following chapter, I will first discuss some of the problems involved
in testing the central premise of hegemonic stability theory, that the decline of
is essential to determine what does, and what does not, constitute this system.
system? With this regard, most political economists draw a sharp distinction
states in this latter category. There is a reasonable justification for this distinction,
from trade among themselves, particularly in the form of trade among CMEA
members). What trade does take place with other states represents a
states. This situation continues to the present, although some states, such as
Hungary, are gradually beginning to become more highly integrated into the
capitalist international trading system, with more trade taking place. Nonetheless,
74
75
the effect of these states on the trading policy of the major core states remains
relatively minor.
structure. This is entirely different from the basis upon which trade decisions
are made in states with com mand-based economies. Most of the trade decisions
in these states are made on the basis of long-term planning and are executed by
governmental agreements. Therefore, the communist states are not included in the
Trade controls including, but not limited to, tariffs, and the question as to
how much impact these trade controls actually have on international trade, are of
of hegemonic stability theory is that openness will increase with the ascendence
of a hegemon, and will decrease with the decline of a hegemon. In this chapter,
determine the degree to which the level of hegemony affects the levels of
are substantially lowered. It is assumed that, all things being equal, lowered
76
tariffs will result in increased trade. However, as Stephen Krasner has noted,
tariffs alone are not a good indicator of structure (Krasner: 1976: 324). Other
factors are also important. Various no n -tariff barriers to trade can substitute for
undervalued exchange rate may serve to make imports too expensive and therefore
Even if one is able to determine the specific level of tariffs does not by
itself allow one to determine the degree to which trade will be facilitated or
Where factor costs are similar, even an extremely low tariff may be a major
impediment to trade. On the other hand, where factor costs are greatly dissimilar,
even a tariff well of 100% may have little affect. This is discussed more fully
in Chapter Five. Raymond Vemon has argued that tariffs, more than ever, are
Further, it should be noted that there are no reliable sources that systematically
report tariff data over a significant period of time. The same is true with regard
to product subsidies and quotas. Therefore, the use of tariffs or subsidies as the
proportions for this measure: the ratios of trade to national income for different
states. The world economy may be said to be increasingly open when these
ratios are increasing across time for most states (Krasner 1976: 324). This
measure has an important advantage over other potential measures. Even were
accurate systematic data on tariffs, trade subsidies, quotas, etc. available, this data
stability, little has been done to date in terms of systematically testing it. Most
of the w ork to present has instead focused upon theoretical discussions of the
workings of the world political economy under hegemonic control (see Gilpin
1981; Keohane 1980, 1984). Even Stephen Krasner, who has suggested the use
associated w ith openness, and system openness itself, will be found not to be
indicate that hegemonic stability theory is incorrect in its most basic premise. At
the very least, it would provide empirical evidence that, even if the premise is
Due to the fact that hegemonic stability theory is most concerned with
in this analysis are based upon two important economic factors: per capita GNP
and aggregate GNP (w ith the exception that states with centrally planned
economies have been omitted from the analysis). The countries used were those
with the highest average per capita GNPs throughout the years included in the
1. Very small states with high GNPs, such as Luxembourg and Lichtenstein,
were omitted, as their overall effect on the world political economy is small.
2. States that are not highly industrialized that have high per capita GNPs due
to the sale of a single commodity (specifically oil), such as Saudi Arabia, were
omitted. The larger population states included in this analysis also have the
largest aggregate GNPs of all countries. Additionally, all of the smaller population
states that are included are among the largest states in terms of aggregate GNP
(though behind the large population states in the analysis) due to their large per
capita GNPs. Nonetheless, there are a few states that are not included due to
their lower per capita GNPs, that do have larger aggregate GNPs than the smaller
79
states that are included. Specifically, smaller states that are included are Norway,
was not included due to its relatively low per capita GNP. Italy must also be
noted in this context, as it presents a special case. During the years included in
decidedly smaller per capita GNP than the other states that were included.
Nonetheless, its per capita GNP was decidedly larger than that of any of the other
states that were not included (excluding the very small states such as Lichtenstein
that were omitted). It was decided not to include Italy, due to the large
difference in per capita GNP level. Indeed, this difference remains currently, with
Italy’s per capita GNP currently being approximately three thousand dollars lower
The data source for this analysis is the International Financial Statistics
financial statistics, including trade statistics. Indeed, the collection of such data
is one of the central functions of the IMF. The years for which data are included
are 1957 through 1983. These are the dates for which continuous data are
In the 1988 edition, 1983 is still the last date for which all of the data are
available for all of the countries included in this analysis (the 1983 edition is
used here because it includes continuous data for dates beginning three years earlier
than the 1988 edition). This span of time is excellently suited for a test of
hegemonic stability theory. In 1957 the U.S. was firmly in place as the
hegemonic power. By the early 1970s, the U.S. had lost its position as hegemon;
thus, by 1983, at least ten years had elapsed with the U.S. no longer being in
the role of the hegemon.2 Further, the U.S. loss of position had continued
national income for each state, because without the inclusion of aggregate economic
activity, highly spurious results might ensue. For example, a severe drop in trade
for a given state in a given year may be interpreted as indicating that there is
income are an excellent measure for the present purposes. They offer the
controlling for the effects of short-term domestic factors. This will constitute the
dependent variable.
power among the core states. Three state attributes will be used as a measure
of state power. These are aggregate economic size, per capita Gross National
Product, and relative share of core states’ trade. Aggregate economic size must
context that some of the m ost highly developed states, such as Switzerland, are
development of a state (certain oil producing nations that currently have high
levels of per capita GNP are an exception to this, but this is a rare anomaly
historically). Share of core states’ trade is a crucial factor, as the rise or fall of
the hegemon’s share is a major determinant of how the hegemon will act with
restrictedness. The three independent variables are used separately, with one
equation for each variable, as they are all three more highly correlated with one
another than with the dependent variable; thus there is a major multicollinearity
analysis, it needs to be remembered that the U.S. remained by far the predominant
the American value to the next highest (or highest, where applicable), expressed
as a percentage. The American value will be used as the baseline here, because
it is with the economic power of the U.S. (the hegemon) relative to that of the
other major core powers with which we are concerned for the period following
World War II. However, in a few cases, the U.S. value will not be the highest.
In later years included in the analysis, the U.S. did not have the highest per capita
income of the industrialized nations. This itself is one major indication of the
decline of hegemony.
are given only in national currency units for each country; only select statistics
are presented in U.S. dollars. For example, gross national product figures for
each country are given in the respective national currency units. Indeed, there
is currently no data source which systematically reports GNP for all of the core
figures that are all based upon a single monetary standard. Since various figures
for the U.S. are used in all parts of the present analysis due to the U.S. role as
the hegemon, it was most practical to convert all figures to U.S. dollars. Of
course, the rates of currency conversion vary over time. Indeed, they may change
83
from day to day. Needless to say, it is not practical to use a different conversion
factor for each day. Indeed, even international agencies such as the World Bank
and International Monetary Fund do not find this to be a practical approach. The
International Monetary Fund provides average rates of exchange for each year.
Therefore, in the analysis, a different conversion rate was used for each country,
For all of the countries included in the analysis other than Australia and
period averages (by year) of exchange rates in units of national currency per
U.S. dollar. For Australia and Great Britain, figures are given in period averages
of exchange rates in U.S. dollars per unit of national currency (IM F 1985: 6).
For this analysis, the figures for Australia and Great Britain were converted to the
per U.S. dollar, in order to facilitate the conversion of all national currency units
to U.S. dollars.
absolute values of a given factor, such as absolute trade levels, are increasing or
decreasing, deflated dollars are been a necessity. However, for the present analysis,
the use of deflated dollars is not only unnecessary, but actually presents a
disadvantage. The concern in this analysis is with changes over time in terms
of the relationship of hegemonic power to the level of trade. Thus for each year,
the power of the hegemon is being compared with international trade. One year
84
is compared with another only in terms of the ratios described above, not in
absolute terms. The key here is that both sides of the regression equations have
to be treated the same. So long as this is the case, the ratios thus derived should
theoretically be the same whether the dollars are inflated or deflated. The only
the use of deflators if deflated dollars are utilized. Thus deflated dollars are not
It is important to emphasize that the focus of this research lies with the
international political economy taken as a whole, rather than w ith the individual
states comprising the system. To the extent that we are interested in the
levels of economic power; specifically, the power of the hegemon relative to that
of the other core states. The focus is thus on the system as a whole.
Obviously, the question arises as to whether our inquiry actually addresses the
system as a whole given that the dependent variables in the statistical tests are
individual states.
This may addressed with two specific points. First, by examining a number
of individual states relative to one another, we are able to determine much about
the constitution of the system as a whole at a given time. Looking at one state
alone would tell us little about the international system, but looking at a number
of states can reveal much. In this context, Charles Ragin points out that in
and explanatory units. In the present analysis, the larger system is the explanatory
85
unit, but individual states may nonetheless be used as data units (Ragin 1987:
8) .
Second, our primary interest lies w ith shifts in the structure of the system
over time. If we make certain determinations about the system for a number of
years, w e may compare the characteristics of the system over time (Chase-D unn
1979: 611). For our purposes, for example, we may determine how the overall
ratios of trade to national income vary among system members (core members
income) is examined over a period of time. The present study thus takes the
technique which allows us to analyze the international system with points of time
as the units of comparison (Hibbs 1974). The years that are included represent
the basic system comparison points. Time series analysis thus allows for the
Yt = a + bXt + et
where:
a = a constant term
86
Xt = the measure of U.S. power (Trade Ratio, Per Capita Ratio, and Aggregate
Findings
the independent variables. The ratios of the trade level of the state with the
highest level of trade, to that of the state with the second highest level of trade,
are called "Trade Ratios." The ratios of the per capita GNP of the state with the
highest GNP, to that of the GNP of the state with the second highest GNP, are
called "Per Capita Ratios." The ratios of the aggregate GNP of the state with the
highest aggregate GNP to that of the GNP of the state with the second highest
First the relationship between Trade Ratio and the ratios of trade to national
income for each country included in the study will be examined. The ratio of
trade to national income for each country was regressed on Trade Ratio. The
U.S. accounted for the greatest level of international trade throughout the years
included; the United Kingdom was next highest from 1958 through 1961, and
Germany was the next highest for all remaining years (see Appendix One). For
all but four of the countries, Japan, Australia, The Netherlands, and Denmark,
signifies p < = .05) negative relationship between Trade Ratio and the ratios of
trade to national income. The R squares range from a high of .49763 for France,
87
to a low of .24967 for Germany. For the remaining four countries, there is not
a statistically significant relationship between Trade Ratio and the ratios of trade
to national income. Throughout the time span for which data are included, the
ratio of the level of U.S. trade to that of the country with the next highest trade
result in lowered ratios of trade to national income. Exactly the opposite is the
case. In general, the ratios of trade to national income increased in absolute terms
throughout the time period under consideration. This runs directly counter to
Next the relationship between Per Capita Ratio and the ratios of trade to
national income for each country will be examined. The ratio of trade to national
income for each country was regressed on Per Capita Ratio. For this
Table One
Trade Ratio
Yt = a + bXt + et
where:
a = a constant term
Xt = the measure of the ratio of U.S. trade to that of the next highest
variable, the U.S. did not have the highest value throughout the period as was
the case for Trade Ratio, having lost ground during the time period under
consideration. From 1958 through 1961, the U.S. had the highest per capita
income, followed by Canada. From 1962 through 1972, the U.S. had the highest
par capita income, followed by Sweden. In 1973 and 1974, Switzerland had the
highest level, followed by Sweden. From 1975 through 1977, Sweden was
was in second place. In 1982 and 1983, Switzerland was highest, followed by
For all but one of the countries included in the analysis, with the exception
Capita Ratio and the ratios of trade to national income. The R squares vary from
a high of .49031 for Norway to a low of .18454 for Australia. For Denmark,
there is not a statistically significant relationship between Per Capita Ratio and the
The U.S. level of per capita income, decreased in general relative to that
of the other countries throughout the period (despite a slight increase in 1982
and 1983). Yet, as is mentioned above, the ratios of trade to national income
Per Capita Ratio and the ratios of trade to national income runs directly counter
Table Two
Yt = a + bXf + et
where:
a = a constant term
Xt = the ratio of U.S. per capita GNP to that of the next highest
Next the relationship between Aggregate Ratio and the ratios of trade to
national income for each country will be examined. For each country, the ratio
through 1960, the United Kingdom had the second highest level of aggregate
income of all of the countries included in the analysis. From 1961 through 1966,
Germany had the second highest level. From 1967 through 1983 (and up to the
present time) Japan was in second place. Additionally, it should be noted that
Japan continued to narrow the gap with the U.S. throughout this period, as it still
Aggregate Ratio and the ratios of trade to national income for all of the countries
except Australia and Denmark. For the latter two countries, there is not a
statistically significant relationship between Aggregate Ratio and the ratios of trade
to national income. For all of the other countries, the findings again run directly
counter to the theory of hegemonic stability. The R Squares vary from a high
of .89101 for Canada, to a low of .44194 for Japan. As U.S. power measured
countries decreased, the ratios of trade to national income increased for these
countries.
92
Table Three
Aggregate Ratio
Yt = a + bX{ + et
where:
a = a constant term
Altogether, the results seem to provide substantial evidence that runs counter
declined, international trade levels continued to increase; this is exactly the opposite
the case not only in terms of hegemonic stability theory in general, but also v is -
regimes. Even when limiting the focus to international trade specifically (as is
done in the regression utilizing Trade Ratio), the results run counter to what
would be expected utilizing hegemonic stability theory as the basis for analysis.
Analysis of a sample of countries for which data are available through 1987
their validity is examined. Finally, the implications of the findings for the
In this chapter, the findings derived from the statistical test of hegemony
that is set forth in Chapter Four will be discussed. First, the question as to
whether the findings are valid will be examined. Second, a brief section on
prospects for the United States over the coming several decades, in terms of its
openness as a whole, since the United States is still the largest economic player
in the world, despite the relative decline that has taken place. Finally, the manner
in which current macro political/economic trends are likely to affect the question
of market openness and system stability over the coming several decades is
examined.
Validity of Findings
The finding that ratios of trade to national income increased for the
distinct possibilities. The first is that the measurement devices utilized in this
analysis do not accurately measure that which they were intended to measure.
The second is that currency exchange rates are skewing the data in a particular
94
95
theory is, in fact, largely valid, but that the period of time required for the decline
forty plus years since the end of World War II, when the U.S. first emerged as
the hegemonic power. The fourth possibility is that hegemonic stability theory
Measurement Suitability
an analysis do not measure the intended target, or at least that they do not do
argue that it is highly unlikely ihat the findings in the present study are due either
All three of the independent variables that were utilized, the level of the
hegemon’s trade relative to that of the next highest, the level of the hegemon’s
Gross National Product relative to that of the next highest, and the hegemon’s
level of per capita income relative to that of the next highest, are considered to
theory. Indeed, all three of these variables are widely used in general as
measures of the economic strength of states. For this study all of these figures
were taken from the International Financial Statistics Yearbook, published by the
source for such figures. Although no figures of the sort employed here are
96
perfect, it is highly unlikely that any errors present in these data are of sufficient
loses its position. In fact, some versions of the theory hold that trade levels
activity. As the present analysis demonstrates, at least for the period under
consideration not even the more conservative proposition that international trade
position is shown to be valid. The important point here is that the ratios of
trade to national income are clearly appropriate as the dependent variables. This
Again, the data are derived from the International Monetary Fund’s
further be noted that the data for both the independent and the dependent
variables are for major industrial societies. This is noteworthy due to the fact
that economic data from the industrialized countries tend to be more accurate
than that from less developed countries, since the industrial nations generally have
appropriate for the task for which it is utilized here. For a more full discussion,
see Chapter Three. Taken together, the factors discussed above make it highly
97
unlikely that the basic findings in the analysis are incorrect due to measurement
error.
skew the data in a given direction that may readily lead to misleading conclusions.
All data for this analysis has been in U.S. dollars, and therefore the analysis is
changed drastically during the period of years for which data are included in this
analysis. For the first years of the data, 1957 through 1970, all conversion rates
were at a "fixed" rate, under the terms of the Bretton Woods monetary accord.
All currencies were pegged to the value of the U.S. dollar, which was itself
pegged to the rate of gold. In 1971, the Nixon Administration removed the U.S.
from the gold standard, and the Bretton Woods monetary regime collapsed. 1971
began with fixed exchange rates still in place, but ended with a system of
"floating" exchange. Under this latter system, exchange values are constantly
indicators for each state, such as the growth rate, inflation rate, size of the money
supply, etc.
Only a drastic exchange value problem could case the findings in the present
analysis to be invalid. Such a value problem would have to exist between the
98
U.S. dollar and the currencies of virtually all of the other nations included in this
analysis, given that the findings generally hold for almost all of the countries.
U.S. economic power has declined relative to that of other major states. Second,
the level of international trade has continued to increase. Thus, any exchange
valuation problems that may be present are not sufficient to alter the basic
Regime Lag
Next I will discuss the possibility that hegemonic stability theory is valid,
but that the erosion of hegemony leads only quite slowly to a decrease in the
suggested that there may be a considerable lag between changes in the relative
power level of the hegemon and changes in the level of international trade. This
place for a considerable amount of time even after the conditions under which
international trade regime. There was a strong policy orientation toward doing
(W orld Bank) and the International Monetary Fund were initially designed to
99
play major roles in the facilitation of such trade. It is, after all, a truism that
While it is true that these institutions did not serve the purpose of
supplying such liquidity particularly well, the U.S. did serve as the lender of last
resort during this period, and thus did provide much of the liquidity necessary to
begin increasing trade levels. M ost importantly, the U.S. was able to get the then
secondary powers, particularly France, Great Britain, and West Germany, to adopt
relatively open market stances. Under the international trade regime thus
some degree, this regime has outlasted the period of American hegemony. There
have been some notable blows to the regime, such as the contingency provisions
of GATT and the increased use of quotas or voluntary restraints (see Chapter
Three), but nonetheless the market remains relatively open. Trade levels have
continued to increase.
It remains possible that the erosion of the trade regime, to some degree
begun by the restrictions noted above, will continue. While the erosion thus far
has not been sufficient to stop the growth of international trade, this may well
not be the case if the erosion continues. As there is currently a general tendency
that this erosion could, in fact, continue to the point where the growth of
international trade may slow; eventually international trade levels may decline in
absolute terms. If this happens, it will support the basic premise of hegemonic
100
stability theory. It will merely have to be noted that the regime lag is quite
substantial.
The fourth possible explanation behind the finding that international trade
has been in continual decline is that hegemonic stability theory is simply incorrect
in its most basic premise. A strong possibility that must be considered within
this context is that hegemonic stability theory may be valid v is -a -v is the world
of the eighteenth and nineteenth centuries, but not for the present world.
the last quarter of the twentieth century from its form in the eighteenth and
nineteenth centuries.
Great Britain itself was, of course, a major player in this process. In turn, a
series of restrictive trade arrangements was established within colonial groups that
indeed highly unlikely. It is made so both by the nature of East-W est relations,
which would make recolonization quite difficult, and also by the extremely high
level of interconnectedness between the industrial states. Many scholars argue that
101
Theorists and Cycle Theorists) instead that the decline of a hegemon would lead
wherein the larger industrial states enter into exclusionary trade arrangements with
those states with which they are most predominant in terms of trade, thus forming
a series of relatively closed trading systems. Aside from the geopolitical realities
that would make a return to colonialism difficult, this form of organization, with
but without direct political control (taken to be unnecessary given the indirect
political control resulting from sufficiently tight economic control) is much more
efficient than colonialism in that it accomplishes the same basic goals without the
much higher costs inherent in the maintenance of colonial relationships. This type
economy that make this rather unlikely, at least in the relatively near future.
Perhaps the single most important economic difference between the nineteenth
century world and that of the late twentieth century is the degree to which the
certainly true that there has to some degree been an integrated capitalist world
economy since the seventeenth century, the degree of interconnection that exists
102
of interdependence that is quite far removed from the form of the international
The increased levels of trade that have been noted are themselves indicative
important to consider the fact that most trade takes place between the
that a much higher portion of U.S. trade is with non-industrialized states than
is the case for any of the other industrialized states. Therefore, even if regional
the levels of trade to which the industrialized states have become accustomed, and,
is not something that the corporations set out to do intentionally, but rather is
would not have been possible without at least some degree of cooperation by
governments of the industrial states. On the part of the U.S. in particular in the
post World War II period, there was an intentional effort to forge this type of
103
trade that they have engendered has led to greater interconnectedness, given the
Second, there has been a dramatic increase in the number of international firms
for which direct foreign investment represents a major portion of their economic
activity. Few of these firms could exist as viable entities with sizes anywhere
near their current levels were they forced to rely principally upon a single home
market and perhaps a few markets in less developed countries. Given the strong
symbiotic relationships that often exist between large firms and governments, and
given the large portion of the national economies represented by the multinational
open international economic order, rather than to move toward the establishment
are not integrated is one of the central determinants of the level of stability of
the system. For a political system, there is not a clear-cut answer as to whether
attribute of the system. Nonetheless, the possibility that it may serve to increase
considerably higher than would otherwise be the case. If trade levels decrease
significantly, it will have a strongly deleterious affect upon all of the industrial
countries. There simply cannot, for the foreseeable future, be sufficiently large
104
It was virtually inevitable that the U.S. would experience some decline in
its relative economic position in the world in the past two to three decades.
After the end of World W ar II, the U.S. was left in an unusually strong position
relative to the other major states, which had been devastated by war. As the U.S.
lost position, major structural adjustments have taken place in the world economy.
1
The U.S. ability to manage international economic policy has been greatly altered
as a result. Nowhere is this more evident than in the case of the international
monetary policy.
In the international monetaiy regime the U.S. fostered after World War II,
the currencies of major countries ware valued in terms of U.S. dollars, and could
dollar itself was pegged to gold at a fixed rate. This arrangement caused there
to be distinct advantages and disadvantages for the U.S. The primary disadvantage
was that it made it extremely difficult for the U.S. to adjust its currency value
(Jacobson and Sidjanski 1982: 26). This could be particularly troublesome for
the U.S. when the U.S. dollar was overvalued, thus making exporting difficult.
105
Other countries generally did not want any devaluation of the U.S. dollars for two
specific reasons. First, it would make American goods yet more competitive than
they already were in the world market. Second, since the U.S. dollar was the
principal reserve currency of the Western world, any devaluation of the dollar
would have had an extremely negative affect on the reserves of the other countries.
On the positive side for the U.S., the U.S. was able to (and did) run
balance of payments deficits without having to borrow. This was made possible
by the fact that corporations and governments would hold U.S. dollars as reserve
assets (Jacobson and Sidjanski 1982:' 26). The U.S. dollar no longer serves this
function. It is true that governments and corporations still hold some U.S. dollars
as reserve assets, but this is also true for other major international currencies such
as the British Pound, the German Mark, the Swiss Franc, and the Japanese Yen.
The U.S. government now does have to borrow to finance its deficits.
decidedly different effect upon the home market than borrowing from domestic
smaller portion of interest paid to foreign sources will be recirculated within the
U.S. in this manner. Given the immense size of the current U.S. cumulative debt
(approximately two trillion dollars), this will constitute an immense drain on U.S.
capital. In turn, this will further limit U.S. economic power, and will thus give
the U.S. even less ability to determine international economic policy than it has
currently. This decline of the U.S. economy will further limit the ability of the
106
The relative decline of U.S. economic strength will also diminish the ability
of the U.S. to shape the economic policy of less developed countries. This is
declining relative economic strength of the U.S. there has been a precipitous decline
in the percentage of its GNP that the U.S. gives in the form of official
development assistance. In 1965, the U.S. ranked third among the industrialized
assistance, w ith .58%, below only Belgium (.60% ) and France (.76% ). By
1986, the U.S. had fallen to second to last in this category among the seventeen
industrialized nations (as classified by the World B ank), with only .23% of its
It has already been noted that direct foreign investment is on the rise for
likely to increase in less developed countries faster than investment by U.S. based
firms. This will further erode U.S. control over the economic policies of the less
this will lessen U.S. economic influence in these countries, including in the area
of trade policy.
Europe 1992
107
One factor that should have a significant impact upon international economic
relations is the unified European market that is planned for 1992. This plan calls
for all barriers to the free movement of goods, services, capital, and workers to
single, unified market. This would make the EEC the largest market in the
world. It is important to remember that most of the EEC member countries are
highly developed core states. Those that are not, Spain and Portugal (Italy is
of development (sem i-peripheral), and are more developed than the majority of
The mere fact of the existence of a single market this large will itself have
a major impact upon the structure of the international political economy. One
international competitors. Since domestic firms in each EEC member state will
firms to either merge with other firms or to enlarge through other means simply
in order to be able to compete in their home markets. Further, firms will expand
1988, the beginnings of a merger wave in the EEC may already be seen, with
firms stating outright that they are merging in order to protect or enlarge their
market positions through preparation for the changes anticipated for 1992. The
108
result will be the collapse or submergence of numerous smaller firms, and the
Parliament is able to increase its authority within the EEC, this increased
In order for the unified market to advance from a theoretical level to that
member governments. There are two central obstacles to this occurrence. First,
country, that enterprises in their own countries will suffer too much at the hands
of the resulting increase in competition by firms from other EEC member states.
Second, the opening of the market will remove a great deal of authority from the
increase its authority, although to what degree is not yet clear. This will result
in loud cries from some, of the loss of national sovereignty. A strong precursor
to this was seen in a recent speech by Margaret Thatcher, in which she decried
the loss of sovereignty that she maintains will occur is the blueprint of the
European Parliament for 1992 is strictly followed. Thus, even given the
assumption that all of the initial necessary legislation is passed, there will continue
strong centralized market, and on the other, to reassert whatever authority they
are losing. If the latter sentiments win out, the concept cannot succeed.
Another question that is central to the plans for 1992 is whether or not
to the present, members of the European Economic Community have been able
to erect such barriers under the terms of Article 115 of the European Economic
Community treaty. For example, under this provision the Italian government
currently limits Japanese auto imports to 2,000 per year. Under the current
proposal for a unified European market, restrictions on goods from outside the
member countries will eventually cause the bloc as a whole to place restrictions
on exports from outside. Indeed, a number of companies from outside the bloc
are quickly opening subsidiaries in a member country precisely for this reason.
Goods produced within the bloc by these subsidiaries, of course, would not be
concerns about such nationalist sentiments. For example, Otto Lambsdorff, the
head of West Germany’s Free Democratic Party, and a partner in Helumut Kohl’s
and Italy, could eventually lead to the erection of trade barriers. Therefore, two
clear questions remain. First, will the integrated European market become a
reality? Second, if it does become a reality, will it maintain an open trade policy
110
one thing is quite clear. A n integrated European market will be the largest in
the world, and this fact will mean that the balance of global economic power will
more and more by the European Parliament, rather than by individual national
governments, this will increase further still the EEC’s position. This will result
The future of the General Agreement on Tariffs and Trade remains unclear
at the present time. It has already been noted that the Tokyo Round resulted in
that this aspect of GATT policy will soon be redressed. This is quite noteworthy,
particularly given that this should not happen according to hegemonic stability
to trade (Leonard Silk 1989). It is perfectly clear to all participants that many
tariff barriers have been replaced by n o n -tariff barriers, and a majority of the
major participants seem to favor the removal of these barriers. If this effort is
successful, it will certainly have a positive affect upon the level of international
trade.
Ill
In 1974, the United Nations General Assembly declared the need for a
over one hundred members), presents a rough blueprint for a future world order
with a structure quite different from that of the present. As would be expected,
the general goal of the NIEO is to increase the self-determination of the LDCs,
and to decrease the disparities between LDCs and MDCs (Reubens 1981: 1).
The call for a New International Economic Order rests upon the concept
that the present world order is structured in such a manner that the gap between
LDCs and MDCs will continue to widen, rather than to narrow. M any advocates
of the NIEO argue that this problem is caused primarily by willful exploitation
of agents in the MDCs. They cite such practices of MNC firms as the charging
number of advocates maintain that even to the extent that such abuses occur, they
are largely the result of larger structural forces. For example, it is argued that
the market is structured such that there is competition for primary products from
LDCs, thus depressing prices, while MDC products incorporating higher levels of
8). Regardless of whether their focus is more upon individual agents or upon
the market as a whole, all proponents of the NIEO agree that the market needs
112
principles.
Not surprisingly, the MDCs have been singularly unsympathetic toward the
It is maintained that the free market remains the most efficient means for the
whom" is generally left out of this equation. There seems to be little chance that
most LDCs will, within the foreseeable future, be able to significantly increase
participation in the extent market system. This would be the case even were
free trade really in place, given LDC competitive disadvantages, but is even more
so given that there are so many protective barriers against processed goods from
the LDCs. This argument between MDCs and LDCs over the means of resource
N orth-South relations.
Hegemonic War
In the past, the dissolution of a hegemonic system may well have led to
Gilpin is certainly correct in his assertion, quoted in Chapter Two, that throughout
history war has been the primary means for resolving system disequilibrium and
113
of nuclear war has drastically altered the utility of hegemonic w ar for such
purposes.
Conclusions
A major change has taken place in the international political economy over
the past two to three decades. The United States has rapidly declined in
economic power relative to other major states. This decline is continuing to the
present. Indeed, in 1988, for the first time since the end of World War II, the
U.S. fell from first place even in terms of the aggregate amount of exports for
astounding fact, given that this represents approximately four times the level of
power, such that the U.S. is not able to dictate international policy to the same
degree that it was able to in the recent past. There is no significant evidence to
suggest that this trend will change over the coming decades.
The world of the coming decades will be one with a multipolar structure.
In terms of the West, The U.S., West Germany, Japan, France, and the U.K. will
remain the dominant powers, followed by the smaller highly developed European
114
states, Canada, Australia, and New Zealand. If current trends continue, power will
will be open in such a multipolar world. As has been shown, despite movement
theory, there seems to be at least a reasonable chance that the market will remain
relatively open. The decline of U.S. power has not led to a decline in world
trade.
the U.S., for example, there are, and will doubtless continue to be, increasing calls
competition in the home market from foreign firms. If such policies are
It seems likely that E ast-W est trade will continue to increase, to the point
which Western countries are involved. It is, of course, impossible to predict with
any reasonable degree of certainty what specific effects this is likely to have on
assume that it will, at least to some degree, increase the aggregate level of
coming decades, there seems to be a reasonable chance that the market will remain
relatively open. Certainly recent trade figures are positive with this regard: in
1988, w orld trade increased by over eight percent, a figure that far exceeds that
that a hegemon may not be essential in order to foster the cooperation necessary
to maintain a w orld with ah open international economic order, and, indeed, with
Avery, William P., and David P. Rapkin. 1982. America in a Changing World
Barcello, John J. III. 1982. "The T w o-T rack Subsidies Code - Countervailing
Duties and Trade Retaliation," in John Quinn and Philip Slayton (eds.)
N on-T ariff Barriers after the Tokyo Round (Montreal: The Institute for
Bergesen, Albert. 1981. ’Long Economic Cycles and the Size of Industrial
Blau, Peter. 1964. Exchange and Power in Social Life (New York: Wiley).
116
Calleo, David P., and Benjamin M. Rowland. 1973. America and the World
76.
Chirot, Daniel. 1977. Social Change in the Twentieth Century (New York:
de C. Grey, Rodney. 1982. "The General Agreement After the Tokyo Round,"
in John Quinn and Philip Slayton (eds.) N on-T ariff Barriers After the
Gilpin, Robert. 1975. U.S. Power and the Multinational Corporation (New
Greenway, David P. 1983. Trade Policy and the New Protectionism (New
D. Irwin, Inc.).
Jacobson, Harold K., and Dusan Sidjanski (eds.). 1982. The Emerging
James, Scott C., and David A. Lake. 1989. "The Second Face of Hegemony."
Kennedy, Paul. 1987. The Rise and Fall of the Great Powers (New York:
Random House).
in David P. Calleo, ed., Money and the Coming World Order (New
Kondratieff, N.D. 1979. "The Long Waves of Economic Life." Eng. trans. in
(Spring): 185-205.
Krasner, Stephen D. 1985. Structural Conflict: The Third World Against Global
A Survey." Mimeo.
(Spring): 317-337.
7 3 -9 1 .
Modelski, George. 1987. "The Study of Long Cycles" in George Modelski, ed.
Modelski, George. 1978. "The Long Cycle of Global Politics and the N ation-
Quinn, John, and Philip Slayton. 1982. N on-T ariff Barriers after the Tokyo
Press).
Reubens, Edwin P, ed. 1981. The Challenge of the New International Economic
Silk, Leonard. 1989. "Concerns Grow on 'Europe 1992.’" The New York
510.
122
123
124
125
126
127
Next Japan 963.258 1978
High U.S. 2417.800 1979
Next Japan 998.877 1979
High U.S. 2631.700 1980
Next Japan 1040.108 1980
High U.S. 2957.800 1981
Next Japan 1142.645 1981
High U.S. 3069.300 1982
Next Japan 1059.549 1982
High U.S. 3304.800 1983
Next Japan 1158.814 1983
I
VITA
Victor E. Sachse
PERSONAL
EDUCATION
128
129
RESEARCH EXPERIENCE
PROFESSIONAL EXPERIENCE
ACADEMIC
POLITICAL
PUBLICATIONS
PAPERS
BOOK REVIEWS
COMPUTER SKILLS
Candidate: V ic t o r E. S a ch se
Major Field: P o l i t i c a l S c ie n c e
Approved:
EXAMINING COMMITTEE:
D.
Date of Examination:
A p r il 19, 1989